Salary cap, Shmalary Cap

[crmalcolm]

Originally Posted by chillibowl

the notion that a rich team can make 20 extra front wings and not be penalized by the cap simply because they dont use those parts (possibly even never intended to use those parts) seem to me to be against the spirit of the rules?

Eventually they would have to incur the costs though.
Either when they become 'used inventory' or 'redundant inventory'.

[crmalcolm]

Originally Posted by peebee2

They have an impact on the cap whether used or not.

Per regs, unused inventory is explicitly not included in the cap for that period.

[peebee2]

Originally Posted by crmalcolm

Per regs, unused inventory is explicitly not included in the cap for that period.

No, but previously unused inventory can be and, if you "sell" it, you can try to offset "profit" against inventory that you did use.

It really isn't anywhere near as simple as you'd like to believe it is.

[chillibowl]

Originally Posted by crmalcolm

Eventually they would have to incur the costs though.
Either when they become 'used inventory' or 'redundant inventory'.

sure but theoretically they could carry that inventory forward indefinitely right?

but really it only just matters if its being carried forward from a year where the team competed for and won a title?

[chillibowl]

Originally Posted by peebee2

It really isn't anywhere near as simple as you'd like to believe it is.

and thats a big part of the problem...the lack of transparency in this process undermines the reasons they endeavoured to implement it in the first place imo.

[peebee2]

Originally Posted by chillibowl

and thats a big part of the problem...the lack of transparency in this process undermines the reasons they endeavoured to implement it in the first place imo.

Maybe but the fact is that it is driving budgets down and it is levelling the playing field. It's doing what it was meant to do. Just that the fans don't like the opaqueness of it. It was always going to be a nightmare.

[Anyopenroad]

Originally Posted by peebee2

It really isn't anywhere near as simple as you'd like to believe it is.

No-one thinks it's simple. That's a strawman you keep creating in order to ... well, I don't know what point you are trying to make tbh.

Finance and accounting aren't simple, that's why they are specialist fields. The teams have specialists, the FIA have specialists, there are processes for appeal and adjudication.

Despite all this complexity, only ONE team out of TEN were pulled up, and that team was found non-compliant in multiple areas, not just one. That bit really IS simple .

[crmalcolm]

Originally Posted by peebee2

No, but previously unused inventory can be and, if you "sell" it, you can try to offset "profit" against inventory that you did use.

It really isn't anywhere near as simple as you'd like to believe it is.

But it can be simple if teams want it to be. The regulations are fairly simple and succinct as written, it is the teams themselves that have introduced the complexity by trying to 'game' the system as you describe.

For the example you give.
The built part is registered in unused inventory until required. It's impact on the cost cap is zero.
When required, it becomes used inventory and the cost is incurred to the team in that reporting period.
If the part is no longer eligible for fitment to the car it is redundant inventory and the cost is incurred in that reporting period.

If a part is being sold off, it will become redundant inventory according to the regulations and so the full cost is incurred in that reporting period. There is no facility within the regulations to off-set in the manner you describe.

Only material and supplies can be off-set, not inventories. And in that case, the material and supplies have to be 'sold' to a third party for the production of inventory to be used on the car. That inventory than has to be purchased by the Reporting Group (the team) and the cost is incurred in that reporting period.

Originally Posted by chillibowl

sure but theoretically they could carry that inventory forward indefinitely right?

In theory, yes. But, there are a couple of other parts of regulation that restrict this.

A) - All costs in respect of Research and Development for F1 Activities must be included in Relevant Costs in the Reporting Period in which they are incurred.

B) - [costs] including fixed production overheads allocated on a basis that is appropriate to the nature of the product and method of production and on the basis of the entity's normal level of activity, and applied consistently from one Reporting Period to another.

It is this second part specifically that restricts the activity. If a rich team has made 20 front wings, then they would have to demonstrate that making 20 front wings a year and not using them is a normal level of activity.

[peebee2]

Originally Posted by crmalcolm

But it can be simple if teams want it to be. The regulations are fairly simple and succinct as written, it is the teams themselves that have introduced the complexity by trying to 'game' the system as you describe.

For the example you give.
The built part is registered in unused inventory until required. It's impact on the cost cap is zero.

I don't think it can.

How, for example, do you quantify the cost of a wishbone made internally? Made by a sub-contractor? Part made by a subbie and finished off in house?
Or bought in as, I think, only Haas do at the moment.

One things for sure, the cost of actually making it bears no resemblance to the allowance for it.

[Tourer]

Originally Posted by Anyopenroad

Despite all this complexity, only ONE team out of TEN were pulled up, and that team was found non-compliant in multiple areas, not just one. That bit really IS simple .

Actually 3 teams out of 10 but only one was over the cap, completely agree with that. In reality, its probably more like 1 team out of 5 that had the income potential to run over the cap.

I thought it was interesting that RBR chose not to take part in the dummy run of the 2020 figures and no doubt that has assisted in the team getting it wrong on its first "go". Bet they're regretting that call now!

I expect that all teams are likely to be compliant from now on, particularly now that they've all experienced the real world of submissions, understand more of the interpretations and also understand the size of penalties, with 3 of them having direct experience in that regard. I thought it interesting that Mr Wolff said that the embarrassment and pain of being announced in breach was pretty much enough of a penalty in its own right - ultimately income MAY be put at risk if sponsors are uncomfortable with breaches.

[peebee2]

Originally Posted by Tourer

I thought it interesting that Mr Wolff said that the embarrassment and pain of being announced in breach was pretty much enough of a penalty in its own right

That's a very good point.

The Daimler-Benz board would likely take a much dimmer view of such a thing than the Red Bull management.

[Tourer]

Originally Posted by peebee2

That's a very good point.

The Daimler-Benz board would likely take a much dimmer view of such a thing than the Red Bull management.

Yeah - think you're right there, particularly when others describe the overspend as "cheating" (whether we agree completely with them or not). Daimler and I would think some other Boards would not be happy about any of that.

[GusGasfuss]

I don't think, that we have seen all breaches now. If someone wants to spend more money (especially if you have a big development department in your main company, like all car manufacturers), he only needs to extent this work to some place outside of the race team.


And of course, like Capito described, some regulations are useless (eating inside is counted to budget, eating outside not).


And i don't believe to people like Toto Wolf, that their development whole year costs only few millions...

[morninggents]

Originally Posted by chillibowl

sure but theoretically they could carry that inventory forward indefinitely right? but really it only just matters if its being carried forward from a year where the team competed for and won a title?

UK accounting convention states that 'stock' should be values at the lower of cost or net realisable value. If a part like the wishbone is unused in the year of manufacture (or acquisition) then it should be carried forward at cost until it is superceded by an improved component at which point it becomes redundant and should be written down in value at that point. Most accounting conventions in europe have similar stock valuation criteria. However, Formula 1 may be different!

[S griffin]

Now Dr Marko is saying that 4 out of 10 teams have breached this team's budget cap!

[morninggents]

Originally Posted by GusGasfuss

I don't think, that we have seen all breaches now. If someone wants to spend more money (especially if you have a big development department in your main company, like all car manufacturers), he only needs to extent this work to some place outside of the race team.
And i don't believe to people like Toto Wolf, that their development whole year costs only few millions...

I would bet that Mercedes spend on Formula 1 over the 2014 - 2020 period far exceded any other Formula 1 team.

[VIVA GT]

Originally Posted by S griffin

Now Dr Marko is saying that 4 out of 10 teams have breached this team's budget cap!

And how does he know that information unless there have been more leaks that Red Bull are so angry about?
(The phrase Pot's & Kettles springs to mind...)

[peebee2]

Originally Posted by morninggents

UK accounting convention states that 'stock' should be values at the lower of cost or net realisable value. If a part like the wishbone is unused in the year of manufacture (or acquisition) then it should be carried forward at cost until it is superceded by an improved component at which point it becomes redundant and should be written down in value at that point. Most accounting conventions in europe have similar stock valuation criteria. However, Formula 1 may be different!

The f1 budget cap has virtually no commonality with accounting procedures...

[crmalcolm]

Originally Posted by peebee2

The f1 budget cap has virtually no commonality with accounting procedures...

Except for the part of the regulations that requires the accounting records to be presented as part of the Cost Cap Reporting Documentation, the part that details deviations from Legal Group accounting practices and the requirement for the auditors of the accounts to also be the Cost Cap auditors......

[peebee2]

Yes, although as I said there is virtually no commonality between budget cap and conventional accounting practices, which vary in different domains in any case.

I realise you seem to like the idea of the budget cap being much simpler than it actually is, although I doubt that’s possible unless they switch to a full spec series where everything is bought off the shelf, with attendant ‘tax’ as per F2 and F3.

[crmalcolm]

Originally Posted by peebee2

I realise you seem to like the idea of the budget cap being much simpler than it actually is,

We're going around the same buoy again.

The budget cap is simple - the teams make it complicated in their application to try and gain an advantage.

One team tried to game the system so much that they breached the cap.
Two teams have tried to game the system to the extent that they incorrectly reported.

[Akrapovic]

Seems that 7 out of 10 teams agree is simple. Of the 3 that don't, only 1 doesn't understand the actual financial side. And that team chose not to be part of the dry run a couple of years ago.

Seems it is indeed pretty simple when you do things correctly.

[Sodemo]

If the budget cap reaches a certain level of sustainability, could we see the tech regs opened up a little?

[Richard C]

Originally Posted by Sodemo

If the budget cap reaches a certain level of sustainability, could we see the tech regs opened up a little?

I think the opposite will be the trend. Everyone wants predictability as to where they will need to spend money. If you open up the technical regulations, then the universe of places to perform R&D grows larger. So you have more options to decide where to spend your money and more options to get it wrong, you run the risk of being embarrassingly wrong. The 2022 Mercedes aero concept is an example of getting it wrong.

The drive is to win, but the REAL driver is the fear is loosing badly. Especially if you are usually at the front of the grid. And disparity in performance is not "good for business". So while F1 likes to label itself as a "technical competition", and there is plenty of "tech", I don't really think it "walks the talk". It plays in small sandboxes (currently hybrid energy management and tightly controlled aero solutions)

We will continue to see more constraints, more homologated/spec solutions (especially those that are not readily visible or hidden way inside the car). There will always be some areas to explore so as to prevent the series from being 100% spec. I don't think the box always has to be smaller each year. They may still consider changing the shape of the box while still generally decreasing it's size. For example, if they felt it could both improving the quality of the overall product (entertainment) and still manage costs, they would open up the regulations in some areas. I wonder if we might see more "active" solutions in the future.

Richard

[S griffin]

Originally Posted by Akrapovic

Seems that 7 out of 10 teams agree is simple. Of the 3 that don't, only 1 doesn't understand the actual financial side. And that team chose not to be part of the dry run a couple of years ago.

Seems it is indeed pretty simple when you do things correctly.

Obviously RBR and AM exceeded the cap, so what's the third team you are talking about?